We are witnessing a major shift in streaming platforms. We see it constantly in the form of price changes and the launch of new subscription plans. The main platforms’ concern for growing their number of subscribers has mutated into an almost obsession with being profitable in the long term.
To do so, the strategy has had to be changed, and all the “big players” in this circus seem to have reached an agreement: more ads, higher prices, and greater stability. And it seems to have worked. Some of the top managers of the streaming platforms have analyzed their future, and as users, we are not going to like their conclusions.
When streaming companies were born, they were all about growing their subscriber base at all costs. The more paying subscribers a service had, the more it could spread the company’s costs across a broad base, which lowers the cost per subscriber. However, the more subscribers a platform has, the more different content is needed to satisfy that subscriber base, so the costs of producing enough programming skyrocket.
There was a time when top industry executives would peg a figure of 100 million subscribers for a platform to be sustainable. But now, the consensus among many executives is that the number is at least 200 million subscribers, possibly more. Netflix has surpassed that figure, with around 270 million subscribers today. Disney and Amazon are the only other streaming services with more than 200 million subscribers. However, platforms no longer seem to be convinced that subscriber numbers alone will sustain them.
Streaming platforms now seek profitability rather than growth.
In a magnificent and extensive interview conducted by The New York Times with almost a dozen leading media executives, they all agreed that the future of streaming does not lie in increasing the number of subscribers.
Although, as we have said, 3 of the major platforms have already surpassed the magic number of 200 million subscribers, their executives still think that it is not enough. And the costs of attracting (and maintaining) those millions of customers is not a cheap task.
In total, Netflix has said it will spend about $17 billion this year on programming — roughly what it was spending before last year’s Hollywood strikes curtailed production. That level of spending has produced a golden age for top-notch writers and actors, many of whom are flocking to the company.
For Netflix, $17 billion represents just half of its total revenue, but almost no competitor can match that level of spending. And, as we all know, not every blockbuster pays off.
On the other hand, according to executives, the pressure of production costs is compounded by the rise in prices for sports programming. Although it is true that no one has told them to get into that world, the platforms have seen in sports a goldmine to attract new users.
And although in Spain it is not yet very widespread, in the United States it is platforms such as Prime Video or Apple TV+, among others, that are acquiring the broadcasting rights for the most important competitions.
So, all of this brings us to a change in strategy. Wall Street analysts and streaming investors used to focus exclusively on subscriber numbers, ignoring losses, in the belief that prices would one day rise substantially. That quickly changed in early 2022 when Netflix announced it had lost subscribers for the first time in a decade.
In the much-discussed interview, the various executives said it is now clear that price increases will not be the answer to streaming profitability for most services. Netflix is the industry price leader and has raised its monthly rate in the United States to $15.49 per month without ads. Few believe the monthly rate will be able to exceed $20 per month in the foreseeable future.
The future of streaming lies in advertising
According to the platform’s top executives, the future of streaming is advertising-based. After years of promoting an ad-free viewing experience, Netflix introduced an ad-supported subscription in 2022 at a price of $6.99 per month. Disney+, Hulu, Amazon, Warner Bros. Discovery’s Max, Peacock, and Paramount+ followed suit and already offer ad-supported subscriptions.
Ad-supported plans are, according to one executive interviewed, “a good way to reach price-sensitive consumers” because “regular users will still come back and pay the higher monthly fee. ” Advertisers covet massive audiences and are willing to pay more for them.
As a result, streaming services have a strong incentive to produce programs with broad appeal rather than more niche content, including the kind of content that generates critical acclaim. Executives say advertisers also like that streaming services can target their ads to specific users and demographics.
The lack of subscriber loss and, above all, the financial results support the decision to include advertising in streaming. For example, Netflix is on track to generate approximately $1 billion in advertising revenue this year, according to eMarketer estimates, and Disney has already generated $1.7 billion this fiscal year. This success suggests that ads in streaming are here to stay.
Additionally, some executives have said that streaming services could aggressively raise prices on ad-free tiers to force users into ad-supported plans . All of this has even executives at the big companies wondering how many streaming services will consumers accept? It’s one of the big mysteries of the nascent streaming world, and the answer is starting to emerge: not many.